With IRAs now open to all, more than $100 billion has streamed in

January 20, 1984

By Thomas WattersonStaff writer of The Christian Science Monitor

It's hard to argue with success. No product, act of Congress, or economic change has made as many people aware of the tax-planning possibilities for savings and investments as has the individual retirement account (IRA).

Since New Year's Day of 1982, when they became available to all wage earners and not just people without a company pension plan, IRAs have moved from being a footnote in the banking and investment industry's list of products to one of the most often mentioned and most competitive products.

At the end of 1981, there was some $26 billion in IRAs, according to the IRA Reporter, a Cleveland newsletter that follows these accounts and the industries that sell them. But 18 months later, on June 30, 1983, $86.6 billion resided in these accounts, says Wesley Howard, editor of the newsletter. He estimates there was nearly $100 billion in IRAs at the end of the year, and by the end of the tax filing season April 15, the figure will have reached $110 billion to $115 billion. (Exact figures for all of 1983 will not be available for several months because businesses may report on a monthly, quarterly, semiannual, or annual basis.)

''Before Jan. 1, 1982, the only people who could have an IRA were the ones who didn't have an employer plan,'' notes Jonathan Flitter, manager of employee benefits in the Boston office of Touche Ross, the accounting firm. ''Now, everybody can have one. And I think everybody should.''

As might be expected with money that's supposed to ensure a secure retirement , the approaches to IRA investing have largely been cautious. Most of the funds - 62.4 percent - have been invested in the most conservative way possible: in banks, savings-and-loans, and mutual savings banks.

Whether or not that is the best approach depends on one's willingness to take risks, the number of expected income-producing years, the choice of whether to take a passive or active investing role during the life of the IRA, and, simply, the kinds of investments that appeal to the investor.

To review the basics, IRAs allow taxpayers to deposit up to $2,000 a year ($2 ,250 for an individual and a nonworking spouse) in an account that earns interest free of federal taxes until the money is withdrawn at retirement. It is this tax-free compounding of interest, together with the automatic tax credit on deposits, that makes an IRA so productive. Withdrawals cannot start before age 59 1/2 without incurring a penalty. You do not have to start taking money out then, but withdrawals must start by age 70 1/2. Withdrawals made at retirement are taxed, but presumably the taxpayer is in a lower bracket.

Although most people have chosen to take the least possible risk with their IRAs by putting them in insured banks and S&amp;L accounts, there are circumstances where some additional risk can make sense, without being especially dangerous. In general, the greater the risk, the greater possible return.

People in their 20s and 30s, for instance, may feel comfortable taking more risk than someone in his 50s. Younger people have more time to correct the investments that do not work out. They might, for instance, put their money in a mutual fund. Although most funds are not insured, they do diversify their investments among many stocks, bonds, or money market instruments, depending on the type of fund.

Someone who is even a little more risk-oriented might put his money in an aggressive growth fund invested in newer, fast-growing companies. If the fund starts to slip - something that can be closely monitored in the pages of many metropolitan newspapers and the Wall Street Journal - you can switch into a less venturesome fund by making a telephone call, no penalties involved.

There are times, too, when an older worker might be able to tolerate greater risk. People who expect a good pension may combine this with other assets to provide a retirement income that permits them to take greater risks with their IRAs. But if you have no pension, or a very small one, and are planning to retire on little more than savings and social security, risk should be avoided.

Married couples where both the husband and wife work also might be able to afford more risk. If they both work, each can put $2,000 a year into his or her IRA, for a total of $4,000. Part of that money might go into an aggressive growth fund or into a self-directed account at a brokerage, where the holder picks the stocks. This last may be the riskiest way to handle an IRA, but if you can afford it, it may be more fun.

If you're not satisfied with the performance of your IRA, you can move the money somewhere else, from a brokerage to a bank or insurance company, for example. As long as you don't actually receive the money, you have 60 days to find another custodian. This move, known as a ''rollover,'' can be done once a year.

For many people with IRAs, the extra security they get from banks makes rollovers unnecessary. Since IRAs became available to all wage earners, the banking industry has been given more power to offer competitive accounts. Now banks, thrifts, and credit unions can offer fixed and variable-rate certificates of deposit backed by government insurance on balances up to $100,000. Terms can vary from 18 months to 10 years, and interest rates may vary by a few fractions of a percentage point from bank to bank.

Also, different institutions have different compounding schedules. On IRAs, a bank or thrift might compound monthly, quarterly, semiannually, or annually. More frequent compounding means a better return for you.